Bryan vs the Sunk Cost Fallacy
Last week I went to a buffet with my wife and family. Those who know me, know that I get pretty crazy when I go to a buffet. You’ll often find me doing jumping jacks and push-ups before I go, trying to burn calories and get as hungry as possible. Once I’m there, I quickly scan the selection and develop a game plan. Then I go to town. I eat food like a slot machine eats nickels.
I make sure to avoid the filler foods and sugary carbonated sodas, saving the dessert for the very last. As for packing down food, I use every technique in the book: The Fat Pants, The Tongan Twist, and, of course, “Clearing the Runway” (see more classic buffet domination techniques here).
When it’s all over, I feel like beached whale. The car seat can’t recline far enough to bring me comfort. Clearly this isn’t healthy. Why do I keep doing this to myself? Am I really getting my money’s worth when I spent the next 12 hours moaning in pain? No. I have fallen victim to the “Sunk Cost Fallacy”.
The “Sunk Cost Fallacy” is a real phenomenon. It happens when we invest time and money into something that affects our future decisions. For example, spending money on an all-you-can-eat buffet makes me want to eat enough to “get my money’s worth”. Unfortunately, eating more can’t do that. The instant I pay for my meal, the money is gone. It is a sunk cost. Once it is gone, the money I had spent is irrelevant. Instead of shoving down food until I am sick, it is much better to focus on having a great experience at the buffet.
There are many other examples of sunk costs. Imagine you buy a movie ticket, only to find out halfway through the movie that the film is tasteless, dry, and boring. Will you leave? More likely, you would sit uncomfortably through the rest, just to “get your money’s worth.” Or take this example from an article in the LA Times: “You work for a private equity firm and personally persuaded your skeptical partners to invest $2 million in a high-tech start-up. Now the chief executive comes to see you with the news that they’ve hit some snags in developing their product, and they’ll need at least another million to bring it to market. Do you write the check?” Odds are that you will.
The fallacy is well recognized in fields like business and economics. The rule behind sunk costs is that money you have spent in the past is irrelevant to any decision you need to make today. Forget it. It’s gone. Unfortunately, our desire to justify these past expenses often sends us into a downward spiral of spending and poor judgement.
Consider briefly why World of Warcraft is so addictive. With all the time, money, and effort a player spends in getting his character to level 45, how easy is it to just turn it off and admit that it was all a waste? You can’t. It is a classic example of the sunk cost fallacy (see more about the World of Warcraft “fallacy” at one of my favorite blogs). I also saw a landmark article about Farmville addicts who are likewise buried in an endless pile of sunk costs. Now, I’ve never played Farmville, but it boasts nearly 50 million players… more than 4 times as many players as World of Warcraft. The article’s writer argues that Farmville isn’t even fun, saying that players only keep playing to justify all the time (and money) they’ve already invested. In fact, he claims, the game is intentionally designed to produce these sunk costs, effectively preventing players from quitting. Sound ridiculous? I stumbled across a Farmville forum, where many players were discussing the introduction of a “pause feature” on the “English Countryside” (EC) game expansion. Take a look at some of these comments, and keep your eyes open for sunk costs:
Chilling, isn’t it? Now, I’m sure there are many people who play World of Warcraft or Farmville without being sucked in by sunk costs. And I don’t mean to pick on these specific games… lots of other games have similar elements (Phantasy Star Online, anyone? That game was so fun…). The fact is, my eyes have been opened and now I’m starting to see sunk costs wherever I go. Gym subscriptions, All Season Passes, and (oh no, you didn’t…) Netflix subscriptions. That’s right… Netflix is nothing more than the movie junkie’s all-you-can-eat buffet.
And you know how I get around buffets.